Principles of Macroeconomics Test 2

A surplus of labor is eliminated by ____ in the real wage rate and a shortage of labor is eliminated by ____ in the real wage rate.

a decrease; an increase.

The amount of real GDP produced at any one time depends on

a fixed amount of capital. a fixed level of technology. decisions people make about leisure versus working.

The bias in the CPI distorts private contracts because

a future payment that is linked to the CPI is likely to be raised above the true increase in the price level.

The table above gives the labor market for a small foreign economy. A minimum wage law that sets the minimum wage at $8.50 per hour produces

a labor surplus of 25million hours.

Structural unemployment usually lasts ______ period of time _______ unemployment

a longer; than frictional.

The figure above shows the labor market in a small town. If the government imposes _________ that firms must at least pay, the effect will be ________ because _____

a minimum wage of $10; an increase in unemployment; a surplus of labor is created.

The purpose of the Current Population Survey is to determine the

employment status of the population

The quantity of labor demanded is the labor hours all

firms plan to hire at a given real wage rate.

As firms search for the best employee to fill an opening and the unemployed search for the job that best first their skills, the economy experiences

frictional unemployment

The items included in the CPI are

goods and services consumed by the typical urban household.

Rob is considered unemployed in the Current Population Survey if he

has looked for a job in the last four weeks but has not found a job.

According to the CPI basket, the largest item in the households' budgets is

housing.

Which of the following explain the natural rate of unemployment?

job search.

The CPI overstates inflation because the average consumer buys

less of those goods whose relative price has risen.

If adding an initial 100 billion labor hours preyer increases real GDP by $3 trillion, diminishing returns informs us that an additional 100 billion labor hours per year will increase real GDP by

less than $3 trillion.

The total labor hours that all the firms in the economy plan to hire during a given time period at one particular real wage rate is the

quantity of labor demanded.

The production function shows that potential GDP increases when the

quantity of labor employed increases.

The supply of labor is defined as the relationship between the real wage rate and the

quantity of labor supplied by households.

Suppose that last year, the price of strawberries was $2 and the price of milk was $1. This year, the price of milk is $2 and the price of strawberries is $1. Which of the following statements is true?

The CPI might increase or decrease depending on the quantities in the CPI market basket.

Which of the following ideas reflect the Monetarist macroeconomic model?

The Monetarist model supports the Classical model, in general. Decreases in the growth rate of the quantity of money trigger recessions.

Which of the following makes the Consumer Price Index a less accurate measure of the cost of living?

The existence of a new goods bias in the calculation of the CPI. The existence of a quality change bias in the calculation of the CPI.

Which of the following help explain the increase in the U.S. labor force participation rate for women?

There was an increase in the educational level of women. Technological change in the home increased the time available for work outside the home.

Which of the following people would be considered unemployed?

Victoria, who does not have job and has been actively searching for work, but turned down a job paying less than she desired.

An example of the quality change bias, and not a goods bias, in the calculation of the CPI is a price increase in

a 2013 GPS unit versus a 2008 GPS unit.

When the price of broccoli increase relative to cauliflower, people who buy fresh vegetables respond by buying more cauliflower and fewer broccoli. As a result, the CPI has

a commodity substitution bias.

A reason a nation faces diminishing returns along a production function is because

the quantity of physical capital is fixed.

If the CPI is 170 at the beginning of the year and 181 at the end, and a bank is paying a nominal interest rate of 6 percent, we see that

the real interest rate is negative.

Firms hire more labor as long as

the real wage rate is less than the additional output the labor produces.

When the labor market is in equilibrium

there is full employment. the quantity demanded of labor equals the quantity supplied. potential GDP is produced.

When the economy is at full employment,

there is no cyclical unemployment.

The above figure shows a nation's production function. Point A is

unattainable given the state of the economy.

The length of time an unemployed person searches for a job is likely to increase as

unemployment benefits become more generous.

The CPI market basket

weighs the goods and services according to the budget of an average urban household.

Involuntary part-time workers are workers who

work less than 35 hours but would like to work full time.

Discouraged workers are included in the calculation of the

working-age population

The table above gives the labor market for a small foreign economy. Equilibrium in the labor market occurs at a real rate of

$8.00 per hour.

If the CPI is 231.4 in one year and is 241.2 in the next year, then the inflation rate equals

(241.2-231.4)/231.4 * 100

Suppose the CPI for this year is 133.7. This number means that

prices rose 33.7 percent over the base year.

When discussing the CPI, the term "commodity substitution bias" refers to changes in

prices that lead households to change the items they buy.

Which of the following people would be classified as employed in the Current Population Survey?

Rich, who is working 20 hours a week but wants a full-time job.

The labor force includes people who

are actively seeking a job but do not have a job.

Diminishing returns means that

each additional unit of labor produces successively less real GDP.

Consumers in a country buy only two goods, sneakers and manicures. The prices and quantities purchased by urban households are in the table above. The reference base year is 2011. The inflation rate between 2011 and 2012 is

10.3 percent.

When the labor market is in equilibrium, real GDP _____ potential GDP.

is equal to

Frictional unemployment is the result of

the normal process of jobs being created and destroyed.

Mark has a two-year wage contract with his employer. Mark's wage contract specifies a $50,000 salary for the first year, and specifies a salary increase equal to the percentage increase in the CPI during the second year. The percentage increase in the CPI during the year was 4.0 percentage points. If the CPI overstates inflation by 1.0 percentage point, at the end of the first year Mark's salary increased by _______ more than it would have without the upward bias.

$500

Suppose that Australia has fully employed all of its resources. This situation means that Australia

is operating at its potential GDP.

The Boskin Congressional Advisory Commission reported that the CPI overstated inflation by

1.1 percentage points a year.

Your starting salary is $35,000 per year. After one year, you are given a raise that increases your nominal salary. Which of the following salaries would you prefer the most?

$38,000 salary with a CPI of 104.0

The tables above show a nation's labor demand and labor supply schedules and its production function. Given the equilibrium in the labor market, potential GDP is

$4.2 trillion.

The tables above show a nation's labor demand and labor supply schedules and its production function. The equilibrium real wage rate is ______ and the equilibrium quantity of labor is _____ billion hours per year.

$40;90

If the GDP price index is 125 and nominal GDP is $130 billion, then real GDP equals _______ billion.

$104.00

In a small, agricultural nation, consumers buy only steak and potatoes. In 2009, the base year, the typical consumer spent $50 on potatoes and $100 on steak. The price of potatoes is $1 and the price of steak is $2 in 2009. In 2010, the price of potatoes is $2 and the price of steak is $1. The CPI for 2010 is

100.

The inflation rate between last year and this year was 14 percent. The CPI was 118 this year. What was the CPI last year?

103.5

In 2013, the reference base period for the CPI for the nation of Webot, a typical consumer spent %30 on potatoes and $150 on steak. If the price of steak is $15 and the price of potatoes is $1 then there are _______ units of steak and _____ units of potatoes in the CPI market basket.

10;30

Consumers in a country buy only two goods, sneakers and manicures. The prices and quantities purchased by urban households are in the table above. The reference base year is 2011. For these data, the CPI for 2012 is

110.

Suppose that the cost of the CPI basket of goods and services rises from $137 in 2010. which is the base year, to $159 in 2011. The CPI in 2011 is _________ and the inflation rate from 2010 to 2011 is

116; 16 percent

Assume the U.S. population is 300 million. If 200 million people are of working age, 125 million are employed, and 15 million are unemployed, what is the size of the labor force?

140 million.

Using the table above, the number of people in the labor force is

175 million

Using the table above, the working-age population is

195 million

The table above gives the CPI for a nation. Based on the table, we can determine that the reference base period is

1998-2000

Based on the production function in the above figure, which of the following is an attainable combination of labor and real GDP?

300 billion hours of labor and real GDP of $8 trillion.

Using the table above, the unemployment rate is

5.71 percent.

Suppose the population is 300 million people, the labor force is 200 million people, the number of people employed is 185 million, and the working-age population is 270 million people. What is the unemployment rate?

7.5 percent

Choose which statement is most correct.

At times, real GDP can exceed potential GDP.

Which of the following would be considered a marginally attached worker?

Carl, who isn't working and has not looked for work in 3 months because he has been turned down for work when he last looked.

Suppose that residents of France have seen their real wage rate increase over time. This means that

French workers have increased buying power

Which of the following would be considered unemployed as part of normal labor market turnover?

Hannah, who quit her job to find one that better suited her skills. Charlotte, who started looking for a job upon graduation from high school.

Which of the following is NOT a source of bias in the CPI?

Quantity change bias.

Which of the following changes would have the largest impact on the CPI?

a one percent increase in the cost of housing.

To measure the CPI, the BLS economic assistants check the prices of

about 80,000 goods and services every month.

Job rationing occurs when the real wage rate is

above the equilibrium wage rate so there is an excess supply of labor.

Collective bargaining by unions can result in a union wage rate that is _________ the equilibrium real wage rate and creates a _______ of labor.

above; surplus.

Job rationing occurs when the real wage is _______ the equilibrium level and there is a ______ of labor.

above; surplus.

U-4, U-5 and U-6 are

all broader measures of the unemployment rate.

The figure above shows the market for fast food restaurant employees in a college town in a small nation to the East. The local Taco Bell pays its workers $12 an hour. This wage rate is

an efficiency wage aimed at reducing employee turnover.

An exampled of the new goods bias in the calculation of the CPI is a price increase in

an iPod player relative to a Walkman.

A newspaper headline reads "A New Wave of Workers Enters the Job Market!" This wave of young, new entrants to the labor market is likely to lead to

an increase in the natural unemployment rate.

Suppose higher prices lead consumers to switch from shopping at Abercrombie & Fitch to shopping at Wal-Mart. If the CPI does not reflect this change, it is referred to as

an outlet substitution bias.

The CPI is a measure of the

average prices paid by consumers for a fixed basket of goods and services.

At full employment there is no

cyclical unemployment.

John has been laid off from his job because of a general downturn in the economy. John's unemployment is best classified as

cyclical.

Rick lost his job as a logistics and distribution coordinator nearly three years ago. After a long and failed search, Rick finally gives up and stops looking for a new job. Rick's decision to suspend his job search causes the unemployment rate to ________ and the labor force participation rate to _____

decrease; decrease.

A country's potential GDP is determined, in part, by

demand and supply in the labor market.

The demand for labor curve is

downward sloping, showing that the quantity of labor demanded increases when the real wage falls.

The natural unemployment rate

includes only frictional and structural unemployment.

The fact that the CPI is a biased measure of the inflation rate means government outlays will

increase at a faster rate than the actual inflation rate.

The bias in the CPI affects government outlays because the overstatement of inflation

increase government outlays by more than what is justified.

The unemployment rate generally ______ during recessions and generally _____ during expansions.

increases;decreases.

The unemployment rate generally ________ during recessions and generally ______ during expansions.

increases;decreases.

People who are working up to 34 hours per week but would like to work more are considered

involuntary part-time workers.

When all other influences on work plans remain the same, the

lower the real wage rate, the greater the quantity of labor supplied.

The classical macroeconomic model proposes that

markets work efficiently to produce the best macroeconomic outcomes.

When the nominal price of a good increases over time, the real cost of buying the good

might increase, decrease, or stay the same depending on how much the CPI changed.

Which of the following can result in job rationing?

minimum wage union wage

The price survey of the goods contained in the CPI market basket is conducted

monthly.

The real age rate is the _______ divided by the ______

nominal wage rate; price level.

The ____ is the average hourly wage rate measured in current dollars, while the ____ is the average hourly rate measured in the dollars of a given reference base year.

nominal wage rate; real wage rate.

If Jose is 22-years old, is available to work but does not have a job and made no specific efforts to find a job for the previous month, Jose is classified in the Current Population Survey as

not in the labor force.

Discouraged workers and marginally attached workers are

not part of the labor force.

The table above gives a nation's production function. Which of the following is NOT an attainable combination of real GDP and labor?

real GDP of $5.2 trillion and labor of 90 billion hours per year.

The percentage return on a loan expressed in terms of goods and services is the

real interest rate.

For a household, th opportunity cost of not working is the

real wage rate.

France is considering implementing policies that will reduce the duration of job search. A possible option is for France to

reduce unemployment benefits.

For twenty years, Jim was a customer service representative at a call center in Minnesota. In order to save money, his firm moved the call center to India and laid off Jim two years ago. Jim has been unable to find a similar job anywhere. Jim's unemployment is best classified as

structural.

If the Federal government expands its support of education and retraining of workers who have been unemployed for a relatively long length of time, which type of unemployment would the education and retraining most likely be targeted?

structural.

Which type of unemployment arises when changes in technology or international competition change the skills needed to perform jobs or change the location of jobs?

structural.

In a labor market without an efficiency wage, minimum wage, or union wage, when the real wage rate exceeds the equilibrium real wage rate, there is a ________ of labor and the real wage rate will

surplus; fall.

Structural change influences the unemployment rate and such structural change is created by changes in

technology.

In 2001, Pablo earned $200 per week at his job. In 2011, Pablo earned $240 per week. If the CPI in 2001 was 100 and the CPI in 2011 was 152, then

the 2011 wage measured in 2001 dollars is $157.89

Suppose that the CPI basket contains only 40 heads of cauliflower and 60 bunches of broccoli. If the price of cauliflower goes down by $1 per head and the price of broccoli goes up by $1 per bunch, then

the CPI increases.

The Keynesian macroeconomic model states that

the economy is inherently unstable and government intervention is required to maintain continued economic growth.

A country reports that its actual real GDP is greater than its potential GDP. it must be that

the excess by which real GDP exceeds potential GDP is only temporary, and eventually real GDP will decrease to be equal to potential GDP.

The Consumer Price Index market basket contains

the goods and services purchased by an average urban household.

The production function is a relationship between the amount of labor employed and

the maximum quantity of real GDP that can be produced.